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Jun 28, 2011

House Version of Patent Reform Poses Challenges for Biotech Inventors

Issuing on a first-to-file basis could hurt smaller firms, and restrictions on USPTO revenue could hinder review process.

House Version of Patent Reform Poses Challenges for Biotech Inventors

The Senate and House now need to reconcile some significant differences between their respective versions of the America Invents Act. [© kuosumo - Fotolia.com]

  • The biggest overhaul of U.S. patent law since 1952 has, in a sense, brought Republicans and Democrats together. Each party now has pushed a version of a patent reform bill, under the name “America Invents,” through the chamber of Congress that they control.

    House Republicans sounded a lot like Senate Democrats on Thursday, soon after their chamber’s version of the Leahy-Smith America Invents Act passed by a somewhat bipartisan 304 to 117 majority, with 136 Democrats joining 168 Republicans in voting for the measure. “This legislation modernizes our patent system to help create private sector jobs and keep America on the leading edge of innovation,” declared House Speaker John Boehner (R-OH).

    Boehner’s statement didn’t sound too different from that of Sen. Pat Leahy (D-VT) the night the Senate bill sailed through that chamber 95–5: “The America Invents Act will promote American innovation, create American jobs, and grow America’s economy, all without adding to the deficit.”

    But for these words to mean something, House Republican leaders and their Senate Democratic counterparts will have to reconcile some significant differences between their patent reform measures.

    Those differences cover how patents will be awarded in the future, as well as how challenges to just-issued patents can be pursued, and what resources the U.S. Patent and Trademark Office (USPTO) will have to reduce its nearly three-year backlog of patents. According to USPTO’s patent data “dashboard,” as of May, the agency took on average 33.9 months to decide applications, 703,175 of which were pending.

    Like the Senate bill (S.23), the House’s version of America Invents (HR 1249) changes the criteria for awarding patents from “first to invent” to “first inventor to file.” Supporters contend that it will benefit smaller inventors by aligning the U.S. patent system with those of the nation’s major trading partners, and by sparing them the time and expense of lawsuits that are estimated to cost business owners $5 million to fight.

  • Future Challenge

    While generally in favor of first inventor to file, the change poses a challenge to many future applications, Thomas T. Moga, co-chair of the Life Sciences and Biotechnology Practice at the law firm Shook, Hardy & Bacon, told GEN.

    “We’ve had time to work with the inventors, go back and forth, get a very nice application, get nice, correctly done figures—something that is highly presentable, well written, properly researched, and fully reviewed by the inventor. I understand the benefits of first-to-file, but I’m very concerned that now that it’s a race to the patent office, the quality of our patent applications will suffer,” Moga said.

    “It’s easy to say, ‘We’ll spend more time with the inventor. We’ll make the inventor more responsive,’ Moga said. “But when you’re dealing with corporations that have already been cut back when it comes to personnel, now you say, ‘by the way, can you look at this patent application because we’ve got to get this thing filed fast?’”

    As argued in this space when the Senate bill passed, first-to-file hurts smaller inventors since they often lack the experienced patent lawyers and other consultants or staffers that a corporate giant can muster to make sure patent paperwork is squared away quickly.

    Reps. John Conyers (D-MI) and Dana Rohrabacher (R-CA) sought an amendment to delay first-to-invent unless a presidential finding held that the rest of the world had adopted grace periods to protect intellectual property between the time inventions occur and patents are filed. The amendment was among 15 debated by the House, most of which failed.

    Conyers prevailed, however, on another amendment setting a 60-business-day grace period for inventors to file drug patents after FDA approval.

    Opponents have also raised a Constitutional issue—no small argument in the House, where control flipped from Democrats to Republicans last year in large part on their promise to align laws and policies with the document that established the federal government. Article I, Section 8 of the U.S. Constitution states as among the powers of Congress: “To promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.”

  • Changing the Rules

    Bruce M. Wexler, a partner in the law firm Paul, Hastings, Janofsky & Walker, told GEN that one key provision of the House bill establishes a supplemental examination procedure for holders of issued patents. The procedure protects patent holders who voluntarily and proactively present previously undisclosed information to USPTO from being challenged for inequitable conduct for nondisclosure.

    Another section of the House patent bill establishes a window for postgrant reviews of 12 months after the issue or re-issue of a patent. That aligns with current law, which also allows postgrant examination petitions to be filed within 12 months, but not the Senate bill, which sets a nine-month review window.

    Postgrant proceedings under the House measure would be conducted by a new Patent Trial and Appeal Board, with the current Board of Patent Appeals and Interferences being abolished. The new appeal board would also review the decisions of examiners in examination and re-examination proceedings, and conduct proceedings to decide if the subject matter of patent applications was misappropriated from actual inventors.

    Within the postgrant review section of the House bill is language that allows third parties to challenge patents after they have been granted through a new inter partes review. It may only be used, however, after the new third-party postgrant review, or after the one-year time period expires for requesting third-party postgrant review. The House bill limits the basis of inter partes review to prior art consisting of patents and printed publications.

    The House would retain the current “substantial new question of patentability” threshold standard for initiating current inter parte exams and apply it to the new inter parte reviews.

    The Senate bill, by contrast, would bar the USPTO director from allowing an inter partes review unless he or she determined there’s a “reasonable likelihood that the petitioner would prevail with respect to at least [one] of the claims challenged in the petition.” The Senate would also limit use of inter partes reviews to questions of anticipation and/or obviousness, as with current law, with only patents or printed publications permissible in challenging previously issued claims.

    Other noteworthy features of the House patent bill:

    • Commercial use: The House bill allows inventors accused of patent infringement to show they have commercially used the subject matter in question more than a year before the filing of the patent at issue.
    • False marking: Under the House bill, only the U.S. or a person who has suffered a competitive injury can bring a “false marking” case. This eliminates the qui tam provision allowing anyone to sue on behalf of the U.S.
    • Genetic tests: USPTO must study how to ensure the availability of confirming genetic diagnostic tests where gene patents and exclusive licensing for primary genetic diagnostic tests exist.
    • Human patents: The House bill bans the granting of patents on “a claim directed to or encompassing a human organism.”
    • Satellite offices: USPTO director David Kappos is authorized to establish three or more satellite offices within three years of the bill becoming law. The office must consider several factors in choosing those locations, including economic impact and the availability of scientific and technical personnel capable of being drawn as examiner at minimal cost.

    The House measure kept in place the first locale recommended last year for a satellite office—Detroit, MI—and named the office for Elijah J. McCoy (1844–1929), the engineer who grew from the son of runaway slaves to an inventor with 57 U.S. patents, most covering the lubrication of steam engines.

  • Fee Diversion

    The House bill would have passed earlier last week, except for a disagreement between the parties over fee diversion. The patent bill passed by the Senate—as with the original House patent bill—allowed the USPTO to keep the fee revenues it generates from filers, rather than see it diverted to the nation’s general revenue coffers. USPTO and its supporters in the Senate contended that the funds were needed to hire more patent examiners and process applications faster.

    In the House, it was a different story. A desire by House Appropriations Committee Chair Rep. Hal Rogers (R-KY) and some other leaders for a greater Congressional role in USPTO spending persuaded the House to cobble a compromise rather than stick with the bill’s original language banning the diversion of patent fees from the USPTO. Some $1 billion in fees has gone to general government purposes since 1992.

    The House bill creates a Public Enterprise Fund, a sequestered account for USPTO revenue in excess of appropriated funds, to be made available exclusively for USPTO. But to access that money, USPTO must submit requests to the House Appropriations Committee.

    The revolving fund first surfaced in a manager’s amendment of proposed changes to the bill offered by Rep. Lamar Smith (R-TX), chairman of the House Judiciary Committee. The House Rules Committee waived the “cut-go” rule that directs Congress to cut spending by the given amount it wishes to spend—the first such waiver since Republicans succeeded Democrats as House leaders in January.

    The fund provision included a sizeable bone for the USPTO—a 15% fee surcharge requested by the agency, and the authority to set rates going forward.

    Biotech patent applications already take longer to review than those in many other subject areas because of a dearth of knowledgeable examiners reviewing such applications. By not setting aside USPTO fees for the patent office, Moga said, the House bill missed an opportunity to maintain U.S. leadership in generating new biotech patents by setting aside the resources needed to address the problem—the very problem that caused Congress to take up patent reform to begin with.

    “If we don’t get our biotech patent group organized and fix this, we are certainly going to fall behind in one of the areas that we’ve been leaders in if we can’t get our patenting taken care of, and it all comes down to funding,” Moga added. “On the one hand, you hear people in Congress grouse about our lack of competitiveness. On the other hand, they won’t take the steps that are necessary to make sure our patent office has the funds it needs to keep up with the technology and provide the services that applicants need to move their applications along at a reasonable time frame.”

    Absent an effort to align the language of the House and Senate bills in coming months, biotech inventors are looking at two unfortunate possible outcomes—a patent reform measure along the lines of that passed by the House, or the status quo. Judging by how poorly the parties are faring coming together on a debt limit and budget deficit agreement, a true meeting of the minds by the Senate and House on patent reform isn’t likely soon, if it happens at all.


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